Labor backtracks on $59b tax plan

OPPOSITION Leader Bill Shorten could offer pensioners an olive branch following Labor's announcement it will scrap the $59 billion in refundable tax credits on share dividends.

A fallout from retirees and pensioners who use the scheme has prompted Mr Shorten to consider a supplement payment package for up to 250,000 pensioners to make up for the annual cash refunds they stand to lose, The Australian reports on Thursday.

The opposition leader is under increasing pressure since announcing the plan to claw back the tax credits this week.

It's believed a financial sweetener will be considered for the 10 per cent of pensioners on the lowest annual incomes, likely through a payment supplement, and other payments, such as restoring the energy supplement linked to the carbon tax.

"We will make sure that pensioners are OK, full stop," Mr Shorten said on Wednesday, hinting that pensioners would not be left out of pocket. Accountants are warning Labor's plan to end the cash handouts for share investors will push more people on to the aged pension, but social groups say the change will help fund key services.

Labor wants to reform the system that allows share investors, who technically don't earn a taxable income, to get government cash refunds for share dividends. "If millionaires are getting hundreds of thousands of dollars of taxpayer money, that's not a welfare system I'm going to back," Mr Shorten told reporters on Wednesday.

But the Institute of Public Accountants says the system has helped keep retirees off the aged pension.

Labor says about 14,000 full pensioners and 200,000 part pensioners will be affected by the change.

The Australian Council of Social Services said only 16 per cent of people older than 64 pay income tax, and many who don't are quite well off. "We have a choice. We close gaps like these in the tax system, or we charge people more for services like aged care and home care," chief executive Cassandra Goldie said.

Malcolm Turnbull said Labor's plan will hit retirees who rely on the cash payouts because they technically don't earn a taxable income on their share portfolios.

The original scheme was introduced under Paul Keating to make sure company profits weren't taxed twice - once with corporate tax and again via personal income tax.

But changes under John Howard in 2000 allowed investors to get a cash refund from the government if their tax imputation was more than the tax they owed. Labor will abolish these refunds, which cost $8 billion a year, if elected.